Background
P-GmbH & Co. KG organised German “coffee trips” between 1997 and 1999. Participants travelled by coach to tourist sites, received a meal and could join further tourist activities. P also held sales events during the trips, although buying goods was optional.
P bought transport services from third parties and supplied them in its own name. Participant fees covered only part of the transport cost; sales revenue financed the balance. P initially deducted all input VAT, but German tax authorities and the Lower Saxony Finance Court applied the Sixth VAT Directive’s special travel-agent scheme to paid excursions, preventing deduction of VAT on the purchased transport.
The Court’s Holding
The Court held that Article 26 of the Sixth Directive applies. A trader need not be a travel agent in the ordinary sense if it provides comparable travel services in its own name using third-party supplies. The coach excursions were travel services with an independent purpose for customers, not merely ancillary to the optional goods sales.
That conclusion was not displaced by the trips’ systematically negative margins or by their commercial purpose of encouraging sales. The special scheme therefore applied even though the excursion fees did not cover all transport costs.
The Court further held that a negative margin on an individual travel supply does not create a right to a refund of the input VAT paid on third-party services directly benefiting travellers. Article 26 expressly excludes deduction or refund, and permitting a refund would undermine the scheme’s allocation of VAT revenue among Member States and improperly allow losses to be offset against profits.
Key Takeaways
- Loss-making excursions can fall within the travel-agent VAT margin scheme.
- Optional goods sales do not make the related excursion merely ancillary where customers may take the trip without buying goods.
- A negative margin on a single travel service does not entitle the trader to deduct or recover input VAT.
Why It Matters
The ruling confirms that the Article 26 scheme turns principally on the nature of the service and the use of third-party travel inputs, rather than the trader’s label, commercial objective or profitability. Businesses using subsidised trips as a marketing device may therefore be subject to the scheme.
It also confirms a significant consequence of that treatment: structurally loss-making travel services cannot generate VAT refunds for otherwise non-deductible input tax.